The Truth About Hybrid Cars, Part the Third

Be sure to see my earlier posts on this subject, in the category “hybrid cars.”

Within many segments of the US business community there is a strong undercurrent of distrust of anything smacking of a coherent national energy policy, even as we are increasingly threatened by all manner of energy-related problems in everything from hydrocarbons to electric generation and transmission infrastructure. As many of these people continue to raise the cry, “socialized medicine!” as a bogeyman to prevent children being covered by medical insurance, they seem to want to raise the cry “socialized energy!” at any discussion of energy policy.

So in that line I wasn’t surprised when the official organ of the business community, the Wall Street Journal, came out recently (October 29, 2007) with an article “The Economics of Hybrids,” pointing out somberly that “for most US consumers, they’re still a money-losing proposition.” Basically, they figure out by comparing models of hybrid / non-hybrid cars and trucks, factor in the bizarre US tax credit for hybrids, and derive a “hybrid premium” for each model, and then, with some assumptions of average mileage, cost of gas, determine how many years of driving would be required to pay back the “hybrid premium.” This is, of course, a pretty questionable analysis.

By their calculation, the American cars average a payout period of about 4.3 years, and the foreign ones (mainly Toyota and Honda) average a breakeven after around 14 years — the Prius I drive is colossally the worst at a whopping 17.9 years. So, by their calculation, hybrids are worthless to the average consumer. So the, I guess, hopefully you won’t be tempted to buy one, or if you dumb enough to do so, buy an American one.

So here’s my take on all this. Any economic calculation is heavily influenced by the input parameters, and I would point out that:

The US tax credit system penalizes firms that make lots of hybrids by cutting out the credit after 60,000 total hybrid cars produced, thus shafting Toyota and Lexus by making their cars about $1,300 to $2,000 more expensive.

The WSJ assumes 15,000 miles per year — I average about twice that in my cars.

They assume a gas price of $2.79 / gallon, we are now averaging about $3.11 / gallon, and rising.

They assume 46 MPG for the Prius, actually I average over 50, and the new Prius is better than this.

In the case of the Prius, they compare it to the Corolla, a considerably less-well-equipped car than the Prius; a more comparable car would be the Camry, which is only about $200 more than the Prius.

So, ignoring taxes, at at my actual driving rate and assuming the actual gas cost, my payback time for the Prius vs. the Camry is a whopping 1.6 months, not 18 years (vs. the Corolla) as they state.

Finally, two key points to think about. First the tax credit — this scheme is pretty nuts. They’ll give a little credit to encourage you to buy a hybrid, but it currently has the effect of encouraging you to buy one from somebody who only makes a few of them, so that they haven’t gone over the 60,000-car limit. This rewards US manufacturers to just have a few hybrids in the stable, but not really push them as if they mattered. Either we should reward hybrid purchases, nor not, but not have this perverse incentive to “only make a few.”

And then of course, what about these hybrids? Except for Toyota and Honda, nobody has a hybrid that gets more than 30 MPG, which is nuts. The Prius gives me regularly 50 – 55 MPG, and these are the cars we should be encouraging people to buy. Just having a hybrid drive means nothing much if you don’t get some significant mileage to show for it. It can be done, the Prius does it.

But of course, if you don’t believe in a national energy policy, if you don’t believe we have a problem being dependent on Middle-eastern oil supplies, or that rising CO2 levels in the atmosphere are a problem, all this is irrelevant!